Potential homebuyers stay out of the market for many reasons, but it comes with a cost

Sat., April 27, 2019

Home equity and auto loan rates are displayed at a bank in North Andover, Mass., in March 2017. The benefits of purchasing a home and building equity over time can’t be underestimated. (Elise Amendola / AP)

Asked to give some advice for the future, Rob Higgins urges wavering first-time homebuyers to look to the past.

Because if history teaches us anything, Higgins says, it’s that opportunity shouldn’t be spurned.

Higgins, executive officer of the Spokane Association Realtors, is partial to the story of “grandma and grandpa, sitting down eating their oatmeal and telling each other, ‘aren’t we glad we own this house.’”

“That’s Middle America,” Higgins said. “It’s that warm feeling that we own this house free and clear.”

The message is old-school, but never more true in an era of appreciating home values, steepening rents and relatively low interest rates.

Or just plain pessimism: about the economy, interest rates and their own personal situation.

However, as Higgins points out, waiting even a year could not only bring higher interest rates but a bigger mortgage because home prices keep climbing.

However, there are legitimate reasons to wait. The biggest might be your job.

If you’re certain that you may soon be transferred, it might be better to rent a home than buying. Or you may plan to move because of school graduation or other life event, so you may be better off renting.

The rule of thumb is to buy a home if you plan on being in the area for at least five years. Owning a home also comes with difficulties. For example, if you lose your job, it can be tough to pay your mortgage or move for a new job.

Another reason to wait is driven by finances. Don’t buy a home if you’re carrying large debt – even if you’re approved for a mortgage. High debt can prevent you from paying your mortgage, which will severely damage your credit and financial health.

Even if you can qualify for a mortgage, it doesn’t necessarily mean you are really ready to buy.

It’s also a good idea to forecast what your debt-to-income ratio will be after you buy a home; almost certainly, it will be higher than while renting.That’s doubly true if your new home is a fixer-upper. Many buyers struggle to hold off making improvements, and the resulting debt could be crippling.

One more caveat: Don’t allow yourself to be pressured by family and friends who urge you to buy now. Only you can make that decision, based on your circumstances.

If those fears and concerns are addressed, you’re probably ready to buy. There are thousands of reasons to do so – tens of thousands if Spokane’s real estate market remains hot.

During the year ending in January 2019, prices rose an average of 14.5%, to $255,850.

Even if the market cools slightly this year and finishes up 10%, that would mean the median price would be about $282,000 by next January. Additionally, if interest rates remain steady, that means financing an additional $30,000 over the duration of the loan.